Income-Tax Officer vs South Asia Industries (P.) Ltd.
1990 Latest Caselaw 114 Del

ORDER

Per Ram Rattan, AM - This group of four appeals by the Revenue arising out of a consolidated order of the CIT (Appeals)-I New Delhi relating to the assessment years 1975-76 to 1978-79, involving identical ground of appeal is being disposed of by a common order. The common ground of appeal for all the four assessment year reads as under :

"On the facts and in the circumstances of the case, the learned CIT (A) erred in cancelling the penalty under section 273(a) as barred by limitation by ignoring his final order dated 15-9-84 (passed consequent to the directions of ITAT order dated 4-1-83) with reference to which the limitation shall reckon in terms of section 275(a) (ii) of the Income-tax Act, 1961."

2. Before considering the above common ground of appeal, we state in brief the facts of the case having bearing on the issue for the 4 assessment years under appeal. The ITO initiated penalty proceedings under section 273(a) at the time of passing the assessment order. However, the assessments made by the ITO were not accepted by the assessed and appeals were filed before the first appellate authority who disposed of the appeals and all the appeals were partly allowed. Aggrieved by the orders of the first appellate authority, both the assessed and the revenue filed cross appeals before the Appellate Tribunal. The Appellate Tribunal by its consolidated order dated 4-1-1986 in ITA Nos. 2293, 2294, 2295 and 2296 and ITA Nos. 2623, 2624, 2625 & 2626/DEL/81 disposed of the above appeals. On one of the grounds of appeal, the Tribunal set aside the order of the CIT (Appeals), being the first appellate authority and restored the matter to his file for all the years with the direction that he would re-determine the ground of appeal on merits, consistent with the opinion expressed by the Bench regarding the ownership of the property being vested in the assessed during all the accounting periods corresponding to the assessment years under consideration. This order of the Tribunal was served upon the Commissioner of Income-tax as per finding recorded by the CIT (Appeals) on 25th January, 1983. The CIT (Appeals) in pursuance of the order of the Tribunal dated 4-1-1983 (supra) passed a fresh order on 31st October, 1986. The ITO passed penalty orders under section 273(a) for all the 4 assessment years on 10-1-1985. These orders were appealed against to the CIT (Appeals) who has held that the penalty orders were barred by limitation of time under section 275 and, therefore, he annulled all the 4 orders of penalties passed by the ITO. While doing so, he has held that the order of the Tribunal was served upon the CIT on 25-1-1983 and counting the limitation from the date, the penalty orders should have been passed by the ITO by 31st July, 1983. Since, the orders were passed on 10-1-1985, the same were out of time. The revenue aggrieved by the above orders of the CIT (Appeals) is in appeal before the Appellate Tribunal.

3. The submission by the Ld. DR was that the order passed by the Tribunal on 4-1-1983, which was served upon the CIT on 25th January, 1983 was not final, inasmuch as, it had restored the appeals to the file of the CIT (Appeals) and the CIT (Appeals) has passed a final order on 31-10-1986 and, therefore, the limitation should have been counted from 31-10-1986 and not from 4-1-1983. He further submitted that the orders passed by the ITO on 10-1-1985 were well within the time allowed under section 275 and, therefore, CIT (A)s orders are erroneous and liable to be reversed.

4. The ld. counsel for the assessed, on the other hand, has supported the order of the CIT (Appeals) and contended that the limitation has to be counted for the purpose of section 275 from the date of the order of the ITAT and not from the date of a consequential order passed by CIT (Appeals) on 31-10-1986.

5. We have given very careful consideration to the rival submissions. The whole controversy is regarding the limitation of passing the order by the ITO provided in section 275. It is, therefore, worthwhile to refer to these provisions which are reproduced here below :

"275. No order imposing a penalty under this Chapter shall be passed -

(a) in a case where the relevant assessment or other order is the subject matter of an appeal to the Appellate Assistant Commissioner under section 246 or an appeal to the Appellate Tribunal under sub-section (2) of section 253, after the expiration of a period, of -

(i) two years from the end of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed, or

(ii) six months from the end of the month in which the order of the Appellate Assistant Commissioner or, as the case may be, the Appellate Tribunal is received by the Commissioner,

whichever period expires later;

(b) in any other case, after the expiration of two years from the end of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed.

Explanation : In computing the period of limitation for the purposes of this section -

(i) the time taken in giving an opportunity to the assessed to be re-heard under the proviso the section 129;

(ii) any period during which the immunity granted under section 245H remained in force; and

(iii) any period during which a proceeding under this Chapter for the levy of penalty is stayed by an order of injunction of any court; shall be excluded."

6. According to these provisions, penalty orders are to be passed by the ITO within 2 years from the end of the financial year in which the proceedings in the case of which action of imposition of penalty had been initiated were completed. However, where the assessment order or the other order is the subject matter of an appeal, to the Appellate Assistant Commissioner or the CIT (Appeals) under section 246 or an appeal has been filed before the Appellate Tribunal under sub-section (2) of section 253 the ITO is competent to pass an order within 6 months from the end of the month in which the order of the AAC or the CIT (Appeals) as the case may be or the Appellate Tribunal is received by the Commissioner. In case the initial period of 2 years available to the ITO for imposing penalty from the end of the financial year in which the proceedings for levy of penalty were initiated has not run out, then the outer limit will be such period of 2 years.

7. In this case, we are not concerned with the initial period of 2 years. We are concerned with the period of 6 months from the end of the month in which the order of the first appellate authority or the Tribunal is received by the Commissioner. The intention behind these provisions appears to be to avoid unnecessary litigation in the matter of levy of penalties till the quantum of assessment becomes final.

Where the appeal by the assessed is dismissed by the first appellate authority i. e., the AAC or the Commissioner, the limitation for imposing penalty will be for a period of six months from the end of the month in which the appellate order of such authority is served upon the Commissioner of Income-tax. The logic is that when two authorities have agreed on the issues involved, it will then be open to the ITO to levy penalty without waiting for the decision of the Tribunal on appeal, if any, filed by the assessed. However, where the first appellate authority disposes of the appeal in favor of the assessed then nothing is left for levy of penalty. In that case, the assessing officer has been allowed to keep the penalty proceedings in suspense till an order of the Tribunal is available. Further period of 6 months is allowed to the ITO for levying penalty (after the order of the Tribunal) from the end of the month in which the order of the Tribunal is served upon the Commissioner. Section 275(a) (ii) refers to case where the relevant assessment or other order is the subject matter of an appeal to the AAC or Commissioner (Appeals) or the Tribunal, as the case may be. When the Tribunal passes an order not finally disposing of the appeal, but restores the issue to the file of the first appellate authority, the effect thereof is that the relevant assessment or the other order becomes the subject matter of appeal before the first appellate authority and the limitation in such cases will be counted from the date the consequential order passed by the first appellate authority was served on the Commissioner. Considered from this angle, we are of the opinion that the penalties imposed by the ITO were within the time provided by section 275(a) (ii) of the Income-tax Act.

8. It may be pointed out that the ITO while imposing penalties has not waited till the passing of consequential order by the first appellate authority and has levied the penalties during the pendancy of the appeals before the CIT (Appeals). There is no bar against such levy of penalty by the ITO.

9. In view of the above discussions, we are unable to sustain the order of the CIT (Appeals). The same is, therefore, annulled and all the 4 appeals are restored to is file for disposing of the same on merits.

10. In the result, all the 4 appeals by the revenue are allowed.